Cowen reaffirms plan for €1.3bn public sector cuts

TAOISEACH BRIAN Cowen has expressed understanding about people’s anger at falling living standards ahead of today’s Irish Congress of Trade Unions day of action, but insisted protests would not resolve the country’s economic problems. Speaking in Dublin Castle yesterday at the European Foundation Forum on Europe’s response to the global recession, Mr Cowen said a cut of €1.3 billion in the public sector pay and pensions bill would have to be implemented in the budget.

“Put simply, we are now spending more than we earn. Our tax revenues have fallen sharply back to 2003 levels. This means that we will have a deficit in the region of €22 billion in our public finances. To bridge this gap we are borrowing over €400 million every single week. Clearly, this cannot continue.”

Mr Cowen said the Government’s strategy was to bring expenditure back to 2006/07 levels.

The country could not afford to long-finger debt reduction, as such a course would be counter-productive and create a huge burden of debt.

“In this context, the Government will, in less than five weeks’ time, place the most significant budget of our recent economic history before the Dáil.

“Stabilisation of our deficit by delivering a €4 billion adjustment in 2010 is critical.

“It is necessary, and it is necessary now.”

He said there was an opportunity to take action to stabilise the deficit as inflation was minus 6.5 per cent for the year to end-September and prices were falling at the fastest rate in 75 years. “This means that the real value of take-home pay and welfare payments has increased by that amount in the last year.”

Mr Cowen said delaying action and increasing debt-servicing costs would mean less for public services in the future.

“For example, every extra €1 billion in interest on the national debt would be the equivalent of the annual salaries of 21,500 new teachers or a 6 per cent reduction in general social welfare rates. Postponing action now would result in additional cuts of this nature in the years ahead.”

He said fairness would be at the heart of the Government’s response to the crisis, but an essential part of fairness involved protecting jobs in the exposed sectors of the economy and helping those who lost their jobs.

“We have made it clear that there is no room for manoeuvre in raising income tax rates next year. Already, the top 4 per cent of earners now pay 48 per cent of income tax.”

Mr Cowen reiterated that a saving of €1.3 billion would have to be made in the public service pay bill as the total pay and pensions bill for the public service was almost €20 billion or about 35 per cent of current spending.

“In the coming weeks, there are tough choices facing us all, not least in the public service. At this time it is not enough for our public service to change; it must also lead by example.”

He said the best way to deal with this issue was through dialogue between Government and the public service unions, and intensive engagement was taking place to explore the options.

Minister for Finance Brian Lenihan gave a strong hint yesterday that low-income earners would be brought into the tax net while ruling out further large increases in taxation.

“Ireland has a relatively low rate of tax on low-income earners, half of which are outside of the tax bracket, and it is an issue which we will have to look at in the future,” Mr Lenihan told the inaugural International Financial Services Summit in the Four Seasons Hotel in Dublin.

Also yesterday, former taoiseach Garret FitzGerald said the Government’s decision not to increase taxation in the forthcoming budget was a huge reversal of policy.

However, speaking on Morning Ireland, he expressed support for the Government’s aim of reducing expenditure by €4 billion, and the measures that would have to be taken to achieve this.